81 FR 7857 - Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, To List and Trade the Shares of the Elkhorn Dow Jones RAFI Commodity ETF of Elkhorn ETF Trust

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 81, Issue 30 (February 16, 2016)

Page Range		7857-7865
FR Document		2016-02981
Federal Register, Volume 81 Issue 30 (Tuesday, February 16, 2016)
[Federal Register Volume 81, Number 30 (Tuesday, February 16, 2016)]
[Notices]
[Pages 7857-7865]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2016-02981]



[[Page 7857]]

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

SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-77086; File No. SR-BATS-2016-03]


Self-Regulatory Organizations; BATS Exchange, Inc.; Notice of 
Filing of Proposed Rule Change, as Modified by Amendment No. 1 Thereto, 
To List and Trade the Shares of the Elkhorn Dow Jones RAFI Commodity 
ETF of Elkhorn ETF Trust

February 9, 2016.
    Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(the ``Act''),\1\ and Rule 19b-4 thereunder,\2\ notice is hereby given 
that on February 1, 2016, BATS Exchange, Inc. (the ``Exchange'' or 
``BATS'') filed with the Securities and Exchange Commission 
(``Commission'') the proposed rule change as described in Items I, II, 
and III below, which Items have been prepared by the Exchange. On 
February 3, 2016, the Exchange filed Amendment No. 1 to the proposed 
rule change. The Commission is publishing this notice to solicit 
comments on the proposed rule change, as modified by Amendment No. 1 
thereto, from interested persons.
---------------------------------------------------------------------------

    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
---------------------------------------------------------------------------

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

    The Exchange is proposing a rule change to list and trade the 
shares of the Elkhorn Dow Jones RAFI Commodity ETF (the ``Fund'') of 
Elkhorn ETF Trust (the ``Trust'') under BATS Rule 14.11(i) (``Managed 
Fund Shares''). The shares of the Fund are collectively referred to 
herein as the ``Shares.''
    The text of the proposed rule change is available at the Exchange's 
Web site at www.batstrading.com, at the principal office of the 
Exchange, and at the Commission's Public Reference Room.

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

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

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

1. Purpose
    The Exchange proposes to list and trade the Shares under BATS Rule 
14.11(i), which governs the listing and trading of Managed Fund Shares 
on the Exchange.\3\ The Fund will be an actively managed fund. The 
Shares will be offered by the Trust, which was established as a 
Massachusetts business trust on December 12, 2013.\4\ The Trust is 
registered with the Commission as an open-end investment company and 
has filed a registration statement on behalf of the Fund on Form N-1A 
(``Registration Statement'') with the Commission.\5\ The Fund will be a 
series of the Trust. The Fund will invest in, among other things, 
exchange-traded commodity futures contracts and exchange-traded 
commodity-linked instruments held indirectly through a wholly-owned 
subsidiary controlled by the Fund and organized under the laws of the 
Cayman Islands (referred to herein as the ``Subsidiary'').
---------------------------------------------------------------------------

    \3\ The Commission approved BATS Rule 14.11(i) in Securities 
Exchange Act Release No. 65225 (August 30, 2011), 76 FR 55148 
(September 6, 2011) (SR-BATS-2011-018).
    \4\ The Trust has obtained from the Commission an order granting 
certain exemptive relief to the Trust under the 1940 Act (File No. 
812-14262). In compliance with BATS Rule 14.11(i)(2)(E), which 
applies to Managed Fund Shares based on an international or global 
portfolio, the Trust's application for exemptive relief under the 
1940 Act states that the Fund will comply with the federal 
securities laws in accepting securities for deposits and satisfying 
redemptions with redemption securities, including that the 
securities accepted for deposits and the securities used to satisfy 
redemption requests are sold in transactions that would be exempt 
from registration under the Securities Act of 1933 (15 U.S.C. 77a).
    \5\ See Registration Statement on Form N-1A for the Trust, dated 
November 10, 2015 (File Nos. 333-201473 and 811-22926). The 
descriptions of the Fund and the Shares contained herein are based, 
in part, on information in the Registration Statement.
---------------------------------------------------------------------------

Description of the Shares and the Fund
    Elkhorn Investments, LLC will be the investment adviser (the 
``Adviser'') to the Fund and will monitor the Fund's investment 
portfolio. 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 (a 
``Sub-Adviser'') to provide day-to-day portfolio management for the 
Fund. ALPS Distributors, Inc. (the ``Distributor'') 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.
    Rule 14.11(i)(7) provides that, if the investment adviser to the 
investment company issuing Managed Fund Shares is affiliated with a 
broker-dealer, such investment adviser shall erect a ``fire wall'' 
between the investment adviser and the broker-dealer with respect to 
access to information concerning the composition and/or changes to such 
investment company portfolio.\6\ In addition, Rule 14.11(i)(7) further 
requires that personnel who make decisions on the investment company's 
portfolio composition must be subject to procedures designed to prevent 
the use and dissemination of material, non-public information regarding 
the applicable investment company portfolio. Rule 14.11(i)(7) is 
similar to BATS Rule 14.11(b)(5)(A)(i), however, Rule 14.11(i)(7) in 
connection with the establishment of a ``fire wall'' between the 
investment adviser and the broker-dealer reflects the applicable open-
end fund's portfolio, not an underlying benchmark index, as is the case 
with index-based funds. The Adviser is not a broker-dealer, although it 
is affiliated with a broker-dealer. The Adviser has implemented a fire 
wall with respect to its broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, personnel who make decisions regarding the 
Fund's portfolio composition will be subject to procedures designed to 
prevent the use and dissemination of material non-public information 
regarding the Fund's portfolio. In the event that (a) the Adviser or a 
Sub-

[[Page 7858]]

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 
and/or such broker-dealer affiliate, as applicable, regarding access to 
information concerning the composition and/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.
---------------------------------------------------------------------------

    \6\ An investment adviser to an open-end fund is required to be 
registered under the Investment Advisers Act of 1940 (the ``Advisers 
Act''). As a result, the Adviser 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.
---------------------------------------------------------------------------

Elkhorn Dow Jones RAFI Commodity ETF
    According to the Registration Statement, the Fund's investment 
objective will be to provide total return which exceeds that of the Dow 
Jones RAFI Commodity Index (the ``Benchmark'') \7\ consistent with 
prudent investment management. The Fund will seek excess return above 
the Benchmark through the active management of a short duration 
portfolio of highly liquid, high quality bonds.
---------------------------------------------------------------------------

    \7\ The Benchmark is developed, maintained and sponsored by S&P 
Dow Jones Indices LLC (``S&P Indices'').
---------------------------------------------------------------------------

    The Fund will be an actively managed fund that seeks to achieve its 
investment objective by, under normal market conditions,\8\ investing 
in exchange-traded commodity futures contracts, centrally cleared and 
non-centrally cleared swaps,\9\ exchange-traded options on futures 
contracts and exchange-traded commodity-linked instruments \10\ 
(collectively, ``Commodities'') through the Subsidiary, thereby 
obtaining exposure to the commodities markets.
---------------------------------------------------------------------------

    \8\ 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.
    \9\ 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.
    \10\ Exchange-traded commodity-linked instruments include only 
the following: (1) funds that provide exposure to commodities as 
would be listed under 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 Rules 14.11(d) 
and 14.11(e)(2), (4), (6), (7), (8), (9) and (10). Such pooled 
investment vehicles are commonly referred to as ``exchange-traded 
funds'' but they are not registered as investment companies because 
of the nature of their underlying investments.
---------------------------------------------------------------------------

    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. There can be no 
assurance that the Fund's performance will exceed the performance of 
the Benchmark at any time. 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,\11\ corporate debt obligations \12\ and repurchase 
agreements;\13\ (2) money market instruments;\14\ (3) investment 
companies (other than those that are commodity-linked instruments),\15\ 
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;\16\ (4) certain bank instruments \17\; 
and (5) cash and other cash equivalents (collectively, ``Other 
Investments''). The Fund will use the Other Investments as

[[Page 7859]]

investments, to provide liquidity and to collateralize the Subsidiary's 
commodity exposure on a day-to-day basis.
---------------------------------------------------------------------------

    \11\ 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.
    \12\ At least 75% of corporate debt obligations will have a 
minimum principal amount outstanding of $100 million or more.
    \13\ 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 (the ``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.
    \14\ 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, which are short-term unsecured 
promissory notes. The Fund may additionally invest in commercial 
paper only if it 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.
    \15\ 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. See Investment Company Act Release No. 
31401 (December 29, 2014) (File No. 812-14264). 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.
    \16\ 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.
    \17\ 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.
---------------------------------------------------------------------------

    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.\18\
---------------------------------------------------------------------------

    \18\ 26 U.S.C. 851.
---------------------------------------------------------------------------

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.\19\ 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 or to serve as margin or 
collateral or otherwise support the Subsidiary's positions in 
Commodities).
---------------------------------------------------------------------------

    \19\ 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.
---------------------------------------------------------------------------

    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.
    The Benchmark is designed to offer an alternative beta using 
signals to generate alpha, but with typical indexing merits such as 
liquidity, transparency and a low fee structure. The Benchmark uses 
momentum and roll yield to over or underweight the liquidity weighted 
commodities within the equally weighted sectors of the Dow Jones 
Commodity Index. Furthermore, the Benchmark utilizes a modified dynamic 
roll methodology based on liquidity and implied roll yield, includes 
only contracts expiring out to 24 months and requires that each 
eligible contract must have open interest of at least 5% of the total 
open interest in the nearby most liquid contracts. The roll occurs on 
the first through fifth (1st-5th) business days with the monthly 
rebalancing. The Benchmark includes only those commodities that are 
included in the Dow Jones Commodity Index. Currently, the Benchmark 
contains 24 commodities across three major sectors including energy, 
agriculture and livestock, and metals. The following table describes 
each of the commodities underlying the futures contracts included in 
the Benchmark as of October 31, 2015. The table also provides each 
instrument's trading hours, exchange and ticker symbol. The table is 
subject to change (and the Subsidiary will not in all cases invest in 
the futures contracts included in the Benchmark).

----------------------------------------------------------------------------------------------------------------
                                                                             Trading hours         Contract
            Commodity                Exchange code    Exchange name \20\   electronic (E.T.)       symbol(s)
----------------------------------------------------------------------------------------------------------------
WTI Crude Oil...................  NYM                 New York            18:00-17:15.......  CL.
                                                       Mercantile
                                                       Exchange.
NY Harbor ULSD..................  NYM                 New York            18:00-17:15.......  HO.
                                                       Mercantile
                                                       Exchange.
Brent Crude Oil.................  ICE                 ICE Futures Europe  20:00-18:00.......  B.
RBOB Gasoline...................  NYM                 New York            18:00-17:15.......  RB.
                                                       Mercantile
                                                       Exchange.
Gasoil..........................  ICE                 ICE Futures Europe  20:00-18:00.......  G.
Natural Gas.....................  NYM                 New York            18:00-17:15.......  NG.
                                                       Mercantile
                                                       Exchange.
SRW Wheat.......................  CBT                 Chicago Board of    Sun-F 20:00-08:45;  W; ZW.
                                                       Trade.              M-F 09:30-14:15.
HRW Wheat.......................  CBT                 Chicago Board of    Sun-F 20:00-08:45;  KW; KE.
                                                       Trade.              M-F 9:30-14:15.
Corn............................  CBT                 Chicago Board of    Sun-F 20:00-08:45;  C; ZC.
                                                       Trade.              M-F 09:30-14:15.
Soybeans........................  CBT                 Chicago Board of    Sun-F 20:00-08:45;  S; ZS.
                                                       Trade.              M-F 09:30-14:15.
Coffee ``C'' Arabica............  NYB                 ICE Futures US....  04:15-13:30.......  KC.
Sugar #11.......................  NYB                 ICE Futures US....  03:30-13:00.......  SB.
Cocoa...........................  NYB                 ICE Futures US....  04:45-13:30.......  CC.
Cotton..........................  NYB                 ICE Futures US....  21:00-14:20.......  CT.
Live Cattle.....................  CME                 Chicago Mercantile  M 10:05-F 14:55;    LC; LE.
                                                       Exchange.           (Halts 17:00-
                                                                           18:00).
Feeder Cattle...................  CME                 Chicago Mercantile  M 10:05-F 14:55;    FC; GF.
                                                       Exchange.           (Halts 17:00-
                                                                           18:00).
Lean Hogs.......................  CME                 Chicago Mercantile  M 10:05-F 14:55;    LH; HE.
                                                       Exchange.           (Halts 17:00-
                                                                           18:00).
Aluminium primary...............  LME                 London Metal        20:00-14:00.......  AH.
                                                       Exchange.
Copper grade A..................  LME                 London Metal        20:00-14:00.......  CA.
                                                       Exchange.
Lead standard...................  LME                 London Metal        20:00-14:00.......  PB.
                                                       Exchange.
Nickel primary..................  LME                 London Metal        20:00-14:00.......  NI.
                                                       Exchange.

[[Page 7860]]

 
Zinc high grade.................  LME                 London Metal        20:00-14:00.......  ZS.
                                                       Exchange.
Silver..........................  CMX                 COMEX.............  18:00-17:15.......  SI.
Gold............................  CMX                 COMEX.............  18:00-17:15.......  GC.
----------------------------------------------------------------------------------------------------------------
\20\ All of the exchanges are Intermarket Surveillance Group (``ISG'') members except for the London Metal
  Exchange (``LME''), ICE Futures Europe, and Commodity Exchange (``COMEX''). The LME falls under the
  jurisdiction of the Financial Conduct Authority (``FCA''). The FCA is responsible for ensuring the financial
  stability of the exchange members' businesses, whereas the LME is largely responsible for the oversight of day-
  to-day exchange activity, including conducting the arbitration proceedings under the LME arbitration
  regulations. 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 ISG; or (b) a
  comprehensive surveillance sharing agreement..

    As the U.S. and foreign exchanges noted above list additional 
contracts, as currently listed contracts on those exchanges gain 
sufficient liquidity, or as other exchanges list sufficiently liquid 
contracts, the Adviser and/or any Sub-Adviser will include those 
contracts in the list of possible investments of the Subsidiary. The 
list of commodities futures and commodities markets considered for 
investment can and will change over time.
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 \21\ and will also be 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.
---------------------------------------------------------------------------

    \21\ As defined in Section 1a(11) of the Commodity Exchange Act.
---------------------------------------------------------------------------

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.
    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.\22\
---------------------------------------------------------------------------

    \22\ See Form N-1A, Item 9. The Commission has taken the 
position that a fund is concentrated if it invests more than 25% of 
the value of its total assets in any one industry. See, e.g., 
Investment Company Act Release No. 9011 (October 30, 1975), 40 FR 
54241 (November 21, 1975).
---------------------------------------------------------------------------

    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.\23\
---------------------------------------------------------------------------

    \23\ See supra note 15.
---------------------------------------------------------------------------

    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.\24\ The 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.\25\
---------------------------------------------------------------------------

    \24\ 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).
    \25\ The Commission has stated that long-standing Commission 
guidelines have required open-end funds to hold no more than 15% of 
their net assets in illiquid securities and other illiquid assets. 
See Investment Company Act Release No. 28193 (March 11, 2008), 73 FR 
14618 (March 18, 2008), footnote 34. See also Investment Company Act 
Release No. 5847 (October 21, 1969), 35 FR 19989 (December 31, 1970) 
(Statement Regarding ``Restricted Securities''); Investment Company 
Act Release No. 18612 (March 12, 1992), 57 FR 9828 (March 20, 1992) 
(Revisions of Guidelines to Form N-1A). A fund's portfolio security 
is illiquid if it cannot be disposed of in the ordinary course of 
business within seven days at approximately the value ascribed to it 
by the fund. See Investment Company Act Release No. 14983 (March 12, 
1986), 51 FR 9773 (March 21, 1986) (adopting amendments to Rule 2a-7 
under the 1940 Act); Investment Company Act Release No. 17452 (April 
23, 1990), 55 FR 17933 (April 30, 1990) (adopting Rule 144A under 
the Securities Act of 1933).
---------------------------------------------------------------------------

Net Asset Value
    The Fund's net asset value (``NAV'') will be determined as of the 
close of trading (normally 4:00 p.m., Eastern Time (``E.T.'')) on each 
day the New York Stock Exchange (``NYSE'') is open for business. The 
NAV of the Fund will be calculated by dividing the value of the net 
assets of such Fund (i.e., the value of its total assets, less total 
liabilities) by the total number of outstanding Shares, generally 
rounded to the nearest cent.
    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

[[Page 7861]]

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., E.T. 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.
Creation and Redemption of Shares
    The Fund will issue and redeem Shares on a continuous basis at NAV 
\26\ only in large blocks of Shares (``Creation Units'') in 
transactions with authorized participants, generally including broker-
dealers and large institutional investors (``Authorized 
Participants''). Creation Units are not expected to consist of less 
than 25,000 Shares. The Fund will issue and redeem Creation Units in 
exchange for an in-kind portfolio of instruments and/or cash in lieu of 
such instruments (the ``Creation Basket'').\27\ In addition, if there 
is a difference between the NAV attributable to a Creation Unit and the 
market value of the Creation Basket exchanged for the Creation Unit, 
the party conveying instruments with the lower value will pay to the 
other an amount in cash equal to the difference (referred to as the 
``Cash Component'').
---------------------------------------------------------------------------

    \26\ 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 NYSE, generally 4:00 p.m., E.T. (the ``NAV Calculation 
Time''). NAV per Share will be calculated by dividing the Fund's net 
assets by the number of Fund Shares outstanding.
    \27\ The Adviser represents that, to the extent that the Trust 
permits or requires a ``cash in lieu'' amount, such transactions 
will be effected in the same or equitable manner for all Authorized 
Participants.
---------------------------------------------------------------------------

    Creations and redemptions must be made by or through an Authorized 
Participant that has executed an agreement that has been agreed to by 
the Distributor with respect to creations and redemptions of Creation 
Units. All standard orders to create Creation Units must be received by 
the Distributor no later than the closing time of the regular trading 
session on the NYSE (ordinarily 4:00 p.m., E.T.) (the ``Closing Time'') 
in each case on the date such order is placed in order for the creation 
of Creation Units to be effected based on the NAV of Shares as next 
determined on such date after receipt of the order in proper form. 
Shares may be redeemed only in Creation Units at their NAV next 
determined after receipt not later than the Closing Time of a 
redemption request in proper form by the Fund through the Distributor 
and only on a business day.
    On each business day, prior to the opening of business of the 
Exchange, the Fund will cause to be published through the National 
Securities Clearing Corporation the list of the names and quantities of 
the instruments comprising the Creation Basket, as well as the 
estimated Cash Component (if any), for that day. The published Creation 
Basket will apply until a new Creation Basket is announced on the 
following business day.
Availability of Information
    The Fund's Web site (www.elkhorn.com), which will be publicly 
available prior to the public offering of Shares, will include a form 
of the prospectus for the Fund that may be downloaded. The Web site 
will include the Shares' ticker, CUSIP and exchange information along 
with additional quantitative information updated on a daily basis, 
including, for the Fund: (1) daily trading volume, the prior business 
day's reported NAV and closing price, mid-point of the bid/ask spread 
at the time of calculation of such NAV (the ``Bid/Ask Price'') \28\ and 
a calculation of the premium and discount of the Bid/Ask Price against 
the NAV; and (2) data in chart format displaying the frequency 
distribution of discounts and premiums of the daily Bid/Ask Price 
against the NAV, within appropriate ranges, for each of the four 
previous calendar quarters. 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. On each business day, 
before commencement of trading in Shares during Regular Trading Hours 
\29\ on the Exchange, the Fund will disclose on its Web site the 
identities and quantities of the portfolio of securities, Commodities 
and other assets (the ``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

[[Page 7862]]

end of the business day.\30\ 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 
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.
---------------------------------------------------------------------------

    \28\ The Bid/Ask Price of the Fund will be determined using the 
mid-point of the highest bid and the lowest offer on the Exchange as 
of the time of calculation of the Fund's NAV. The records relating 
to Bid/Ask Prices will be retained by the Fund and its service 
providers.
    \29\ Regular Trading Hours are 9:30 a.m. to 4:00 p.m. Eastern 
Time.
    \30\ Under accounting procedures to be followed by the Fund, 
trades made on the prior business day (``T'') will be booked and 
reflected in NAV on the current business day (``T+1''). Accordingly, 
the Fund will be able to disclose at the beginning of the business 
day the portfolio that will form the basis for the NAV calculation 
at the end of the business day.
---------------------------------------------------------------------------

    In addition, for the Fund, an estimated value, defined in BATS Rule 
14.11(i)(3)(C) as the ``Intraday Indicative Value,'' that reflects an 
estimated intraday value of the Fund's portfolio (including the 
Subsidiary's portfolio), will be disseminated. Moreover, the Intraday 
Indicative Value will be based upon the current value for the 
components of the Disclosed Portfolio 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.\31\
---------------------------------------------------------------------------

    \31\ Currently, it is the Exchange's understanding that several 
major market data vendors display and/or make widely available 
Intraday Indicative Values published via the Consolidated Tape 
Association (``CTA'') or other data feeds.
---------------------------------------------------------------------------

    The dissemination of the Intraday Indicative Value, together with 
the Disclosed Portfolio, will allow investors to determine the value of 
the underlying portfolio of the Fund on a daily basis and will provide 
a close estimate of that value throughout the trading day.
    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, such as Bloomberg and Thomson Reuters, 
which can be accessed by Authorized Participants and other investors. 
More specifically, 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 and/or 
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.
    Investors will also be able to obtain the Fund's Statement of 
Additional Information (``SAI''), the Fund's annual and semi-annual 
reports (together, ``Shareholder Reports''), and its Form N-CSR and 
Form N-SAR, filed twice a year. The Fund's SAI and Shareholder Reports 
will be available free upon request from the Fund, and those documents 
and the Form N-CSR and Form N-SAR may be viewed on-screen or downloaded 
from the Commission's Web site at www.sec.gov. Information regarding 
market price and trading volume of the Shares will be continually 
available on a real-time basis throughout the day on brokers' computer 
screens and other electronic services. The previous day's closing price 
and trading volume information for the Shares will be published daily 
in the financial section of newspapers. Quotation and last sale 
information for the Shares will be available on the facilities of the 
CTA.
    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.
Initial and Continued Listing
    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. The Exchange represents that, for initial and/or continued 
listing, the Fund and the Subsidiary must be in compliance with Rule 
10A-3 under the Act.\32\ A minimum of 100,000 Shares will be 
outstanding at the commencement of trading on the Exchange. 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.
---------------------------------------------------------------------------

    \32\ See 17 CFR 240.10A-3.
---------------------------------------------------------------------------

Trading Halts
    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 
may be halted because of market conditions or for reasons that, in the 
view of the Exchange, make trading in the Shares inadvisable. These may 
include: (1) The extent to which trading is not occurring in the 
securities, Commodities and other assets constituting the Disclosed 
Portfolio of the Fund and the Subsidiary; or (2) whether other unusual 
conditions or circumstances detrimental to the maintenance of a fair 
and orderly market are present. Trading in the Shares also will be 
subject to Rule 14.11(i)(4)(B)(iv), which sets forth circumstances 
under which Shares of the Fund may be halted.
Trading Rules
    The Exchange deems the Shares to be equity securities, thus 
rendering trading in the Shares subject to the Exchange's existing 
rules governing the trading of equity securities. BATS will allow 
trading in the Shares from 8:00 a.m. until 5:00 p.m. Eastern Time. The 
Exchange has appropriate rules to facilitate transactions in the Shares 
during all trading sessions. As provided in BATS Rule 11.11(a), the 
minimum price variation for quoting and entry of orders in Managed Fund 
Shares traded on the Exchange is $0.01, with the exception of 
securities that are priced less than $1.00, for which the minimum price 
variation for order entry is $0.0001.
Surveillance
    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

[[Page 7863]]

Exchange's surveillance procedures for derivative products, including 
Managed Fund Shares. The Exchange 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 the ISG, from other exchanges who are members or 
affiliates of the ISG, or with which the Exchange has entered into a 
comprehensive surveillance sharing agreement. In addition, the Exchange 
is able to access, as needed, trade information for certain fixed 
income instruments reported to TRACE. 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 ISG; or (b) a comprehensive 
surveillance sharing agreement. Investments in non-centrally cleared 
swaps (through the Subsidiary) will not represent more than 20% of the 
Fund's net assets.
    In addition, the Exchange prohibits the distribution of material, 
non-public information by its employees.
Information Circular
    Prior to the commencement of trading, the Exchange will inform its 
members in an Information Circular of the special characteristics and 
risks associated with trading the Shares. Specifically, the Information 
Circular will discuss the following: (1) The procedures for purchases 
and redemptions of Shares in Creation Units (and that Shares are not 
individually redeemable); (2) BATS Rule 3.7, which imposes suitability 
obligations on Exchange members with respect to recommending 
transactions in the Shares to customers; (3) how information regarding 
the Intraday Indicative Value and the Disclosed Portfolio is 
disseminated; (4) the risks involved in trading the Shares during the 
Pre-Opening \33\ and After Hours Trading Sessions \34\ when an updated 
Intraday Indicative Value will not be calculated or publicly 
disseminated; (5) the requirement that members deliver a prospectus to 
investors purchasing newly issued Shares prior to or concurrently with 
the confirmation of a transaction; and (6) trading information.
---------------------------------------------------------------------------

    \33\ The Pre-Opening Session is from 8:00 a.m. to 9:30 a.m. 
Eastern Time.
    \34\ The After Hours Trading Session is from 4:00 p.m. to 5:00 
p.m. Eastern Time.
---------------------------------------------------------------------------

    In addition, the Information Circular will advise members, prior to 
the commencement of trading, of the prospectus delivery requirements 
applicable to the Fund. Members purchasing Shares from the Fund for 
resale to investors will deliver a prospectus to such investors. The 
Information Circular will also discuss any exemptive, no-action and 
interpretive relief granted by the Commission from any rules under the 
Act.
    Additionally, the Information Circular will reference that the Fund 
is subject to various fees and expenses described in the Registration 
Statement. The Information Circular will also disclose the trading 
hours of the Shares of the Fund and the applicable NAV Calculation Time 
for the Shares. The Information Circular will disclose that information 
about the Shares of the Fund will be publicly available on the Fund's 
Web site. In addition, the Information Circular will reference that the 
Trust is subject to various fees and expenses described in the Fund's 
Registration Statement.
2. Statutory Basis
    The Exchange believes that the proposal is consistent with Section 
6(b) of the Act \35\ in general and Section 6(b)(5) of the Act \36\ in 
particular in that it is designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, to foster cooperation and coordination with 
persons engaged in facilitating transactions in securities, to remove 
impediments to and perfect the mechanism of a free and open market and 
a national market system and, in general, to protect investors and the 
public interest.
---------------------------------------------------------------------------

    \35\ 15 U.S.C. 78f.
    \36\ 15 U.S.C. 78f(b)(5).
---------------------------------------------------------------------------

    The Exchange believes that the proposed rule change is designed to 
prevent fraudulent and manipulative acts and practices in that the 
Shares will be listed and traded on the Exchange pursuant to the 
initial and continued listing criteria in BATS Rule 14.11(i). 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. If the investment adviser 
to the investment company issuing Managed Fund Shares is affiliated 
with a broker-dealer, such investment adviser to the investment company 
shall erect a ``fire wall'' between the investment adviser and the 
broker-dealer with respect to access to information concerning the 
composition and/or changes to such investment company portfolio. The 
Adviser is not registered as a broker-dealer, although it is affiliated 
with a broker-dealer, and is therefore required to implement a ``fire 
wall'' with respect to such broker-dealer affiliate regarding access to 
information concerning the composition and/or changes to the Fund's 
portfolio. In addition, Rule 14.11(i)(7) further requires that 
personnel who make decisions on the open-end fund's portfolio 
composition must be subject to procedures designed to prevent the use 
and dissemination of material non-public information regarding the 
Fund's portfolio. The Exchange may obtain information regarding trading 
in the Shares and the underlying shares in investment companies, 
futures, and options on futures via the ISG, from other exchanges who 
are members or affiliates of the ISG, or with which the Exchange has 
entered into a comprehensive surveillance sharing agreement. The 
Exchange represents that trading in the Shares will be subject to the 
existing trading surveillances which are designed to detect violations 
of Exchange rules and applicable federal securities laws.
    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 
the 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 will 
be able to access, as needed, trade information for certain

[[Page 7864]]

fixed income securities held by the Fund reported to FINRA's TRACE.
    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 ISG; or (b) a comprehensive surveillance sharing 
agreement. Investments in non-centrally cleared swaps (through the 
Subsidiary) will not represent more than 20% of the Fund's net assets.
    The Fund's investment objective will be to provide total return 
which exceeds that of the Benchmark, consistent with prudent investment 
management. 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. 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. 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. The 
Fund and the Subsidiary will not invest in any non-U.S. equity 
securities (other than shares of the Subsidiary).
    The proposed rule change is designed to promote just and equitable 
principles of trade and to protect investors and the public interest in 
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. In addition, a large amount of 
information will be publicly available regarding the Fund and the 
Shares, thereby promoting market transparency. Moreover, the Intraday 
Indicative Value will be widely disseminated by one or more major 
market data vendors and broadly displayed at least every 15 seconds 
during Regular Trading Hours. On each business day, before commencement 
of trading in Shares during Regular Trading Hours, the Fund will 
disclose on its Web site the Disclosed Portfolio of the Fund and the 
Subsidiary that will form the basis for the Fund's calculation of NAV 
at the end of the business day. Pricing information will be available 
on the Fund's Web site including: (1) The prior business day's reported 
NAV, the Bid/Ask Price of the Fund, and a calculation of the premium 
and discount of the Bid/Ask Price against the NAV; and (2) data in 
chart format displaying the frequency distribution of discounts and 
premiums of the daily Bid/Ask Price against the NAV, within appropriate 
ranges, for each of the four previous calendar quarters. Additionally, 
information regarding market price and trading volume of the Shares 
will be continually available on a real-time basis throughout the day 
on brokers' computer screens and other electronic services, and 
quotation and last sale information for the Shares will be available on 
the facilities of the CTA.
    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, such as Bloomberg and Thomson Reuters, 
which can be accessed by Authorized Participants and other investors. 
More specifically, pricing information for exchange-traded commodity 
futures contracts, exchange-traded options on futures contracts, 
exchange-traded commodity-linked instruments, and 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 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 and/or 
broker-dealer firms and/or pricing services. Additionally, FINRA's 
TRACE will be a source of price information for certain fixed income 
securities held by the Fund.
    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. Trading in Shares of the Fund will be halted 
under the conditions specified in BATS Rule 11.18. Trading may also be 
halted because of market conditions or for reasons that, in the view of 
the Exchange, make trading in the Shares inadvisable. Finally, trading 
in the Shares 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. 
In addition, the Exchange is able to access, as needed, trade 
information for certain fixed income instruments reported to FINRA's 
TRACE. As noted above, investors will also have ready access to 
information regarding the Fund's holdings, the Intraday Indicative 
Value, the Disclosed Portfolio, and quotation and last sale information 
for the Shares.
    The proposed rule change is designed to perfect the mechanism of a 
free and open market and, in general, to protect investors and the 
public interest in that it will facilitate the listing and trading of 
an additional type of actively-managed exchange-traded product that 
will enhance competition among market participants, to the benefit of 
investors and the marketplace. As noted above, the Exchange has in 
place surveillance procedures relating to trading in the Shares and in 
the Exchange-Traded Instruments held by the Fund and the Subsidiary 
with other markets and other entities that are members of the ISG and 
may obtain information via ISG from other exchanges that are members of 
ISG or with which the Exchange has entered into a comprehensive 
surveillance sharing agreement. In addition, as noted above, investors 
will have ready access to information regarding the Fund's holdings, 
the Intraday Indicative Value, the Disclosed Portfolio, and quotation 
and last sale information for the Shares.
    For the above reasons, the Exchange believes that the proposed rule 
change is consistent with the requirements of Section 6(b)(5) of the 
Act.

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

    The Exchange does not believe that the proposed rule change will 
impose any burden on competition that is not necessary or appropriate 
in furtherance of the purpose of the Act. The Exchange notes that the 
proposed rule change will facilitate the listing and trading of an 
additional actively-managed exchange-traded product that will enhance 
competition among market participants, to the benefit of investors and 
the marketplace.

[[Page 7865]]

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

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

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

    Within 45 days of the date of publication of this notice in the 
Federal Register or within such longer period (i) as the Commission may 
designate up to 90 days of such date if it finds such longer period to 
be appropriate and publishes its reasons for so finding or (ii) as to 
which the Exchange consents, the Commission will: (a) By order approve 
or disapprove such proposed rule change, or (b) institute proceedings 
to determine whether the proposed rule change should be disapproved.

IV. Solicitation of Comments

    Interested persons are invited to submit written data, views, and 
arguments concerning the foregoing, including whether the proposed rule 
change, as modified by Amendment No. 1 thereto, is consistent with the 
Act. Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's Internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-BATS-2016-03 on the subject line.

Paper Comments

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

All submissions should refer to File Number SR-BATS-2016-03. This file 
number should be included on the subject line if email is used. To help 
the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's Internet Web site (http://www.sec.gov/rules/sro.shtml). Copies of the submission, all subsequent amendments, all 
written statements with respect to the proposed rule change that are 
filed with the Commission, and all written communications relating to 
the proposed rule change between the Commission and any person, other 
than those that may be withheld from the public in accordance with the 
provisions of 5 U.S.C. 552, will be available for Web site viewing and 
printing in the Commission's Public Reference Room, 100 F Street NE., 
Washington, DC 20549 on official business days between the hours of 
10:00 a.m. and 3:00 p.m. Copies of such filing also will be available 
for inspection and copying at the principal office of the Exchange. All 
comments received will be posted without change; the Commission does 
not edit personal identifying information from submissions. You should 
submit only information that you wish to make available publicly. All 
submissions should refer to File Number SR-BATS-2016-03, and should be 
submitted on or before March 8, 2016.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\37\
Brent J. Fields,
Secretary.
---------------------------------------------------------------------------

    \37\ 17 CFR 200.30-3(a)(12).
---------------------------------------------------------------------------

[FR Doc. 2016-02981 Filed 2-12-16; 8:45 am]
 BILLING CODE 8011-01-P
Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices 7857

SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s administrative, custodial and transfer
COMMISSION Statement of the Purpose of, and agency services to the Fund.
Statutory Basis for, the Proposed Rule Rule 14.11(i)(7) provides that, if the
[Release No. 34–77086; File No. SR–BATS– investment adviser to the investment
2016–03]
Change
company issuing Managed Fund Shares
1. Purpose is affiliated with a broker-dealer, such
Self-Regulatory Organizations; BATS
Exchange, Inc.; Notice of Filing of The Exchange proposes to list and investment adviser shall erect a ‘‘fire
Proposed Rule Change, as Modified by trade the Shares under BATS Rule wall’’ between the investment adviser
Amendment No. 1 Thereto, To List and 14.11(i), which governs the listing and and the broker-dealer with respect to
Trade the Shares of the Elkhorn Dow trading of Managed Fund Shares on the access to information concerning the
Jones RAFI Commodity ETF of Elkhorn Exchange.3 The Fund will be an actively composition and/or changes to such
ETF Trust managed fund. The Shares will be investment company portfolio.6 In
offered by the Trust, which was addition, Rule 14.11(i)(7) further
February 9, 2016. established as a Massachusetts business requires that personnel who make
Pursuant to Section 19(b)(1) of the trust on December 12, 2013.4 The Trust decisions on the investment company’s
Securities Exchange Act of 1934 (the is registered with the Commission as an portfolio composition must be subject to
‘‘Act’’),1 and Rule 19b–4 thereunder,2 open-end investment company and has procedures designed to prevent the use
notice is hereby given that on February filed a registration statement on behalf and dissemination of material, non-
1, 2016, BATS Exchange, Inc. (the of the Fund on Form N–1A public information regarding the
‘‘Exchange’’ or ‘‘BATS’’) filed with the (‘‘Registration Statement’’) with the applicable investment company
Securities and Exchange Commission Commission.5 The Fund will be a series portfolio. Rule 14.11(i)(7) is similar to
(‘‘Commission’’) the proposed rule of the Trust. The Fund will invest in, BATS Rule 14.11(b)(5)(A)(i), however,
change as described in Items I, II, and among other things, exchange-traded Rule 14.11(i)(7) in connection with the
III below, which Items have been commodity futures contracts and establishment of a ‘‘fire wall’’ between
prepared by the Exchange. On February exchange-traded commodity-linked the investment adviser and the broker-
3, 2016, the Exchange filed Amendment instruments held indirectly through a dealer reflects the applicable open-end
No. 1 to the proposed rule change. The wholly-owned subsidiary controlled by fund’s portfolio, not an underlying
Commission is publishing this notice to the Fund and organized under the laws benchmark index, as is the case with
solicit comments on the proposed rule of the Cayman Islands (referred to index-based funds. The Adviser is not a
change, as modified by Amendment No. herein as the ‘‘Subsidiary’’). broker-dealer, although it is affiliated
1 thereto, from interested persons. with a broker-dealer. The Adviser has
Description of the Shares and the Fund implemented a fire wall with respect to
I. Self-Regulatory Organization’s Elkhorn Investments, LLC will be the its broker-dealer affiliate regarding
Statement of the Terms of Substance of investment adviser (the ‘‘Adviser’’) to access to information concerning the
the Proposed Rule Change the Fund and will monitor the Fund’s composition and/or changes to the
The Exchange is proposing a rule investment portfolio. It is currently Fund’s portfolio. In addition, personnel
change to list and trade the shares of the anticipated that day-to-day portfolio who make decisions regarding the
Elkhorn Dow Jones RAFI Commodity management for the Fund will be Fund’s portfolio composition will be
ETF (the ‘‘Fund’’) of Elkhorn ETF Trust provided by the Adviser. However, the subject to procedures designed to
(the ‘‘Trust’’) under BATS Rule 14.11(i) Fund and the Adviser may contract with prevent the use and dissemination of
(‘‘Managed Fund Shares’’). The shares of an investment sub-adviser (a ‘‘Sub- material non-public information
the Fund are collectively referred to Adviser’’) to provide day-to-day regarding the Fund’s portfolio. In the
herein as the ‘‘Shares.’’ portfolio management for the Fund. event that (a) the Adviser or a Sub-
The text of the proposed rule change ALPS Distributors, Inc. (the
is available at the Exchange’s Web site ‘‘Distributor’’) will be the principal 6 An investment adviser to an open-end fund is

at www.batstrading.com, at the required to be registered under the Investment
underwriter and distributor of the Advisers Act of 1940 (the ‘‘Advisers Act’’). As a
principal office of the Exchange, and at Fund’s Shares. The Fund will contract result, the Adviser and any Sub-Adviser and their
the Commission’s Public Reference with unaffiliated third parties to provide related personnel are subject to the provisions of
Room. Rule 204A–1 under the Advisers Act relating to
3 The Commission approved BATS Rule 14.11(i)
codes of ethics. This Rule requires investment
II. Self-Regulatory Organization’s in Securities Exchange Act Release No. 65225
advisers to adopt a code of ethics that reflects the
Statement of the Purpose of, and fiduciary nature of the relationship to clients as
(August 30, 2011), 76 FR 55148 (September 6, 2011) well as compliance with other applicable securities
Statutory Basis for, the Proposed Rule (SR–BATS–2011–018). laws. Accordingly, procedures designed to prevent
Change 4 The Trust has obtained from the Commission an
the communication and misuse of non-public
order granting certain exemptive relief to the Trust information by an investment adviser must be
In its filing with the Commission, the under the 1940 Act (File No. 812–14262). In consistent with Rule 204A–1 under the Advisers
Exchange included statements compliance with BATS Rule 14.11(i)(2)(E), which Act.
concerning the purpose of and basis for applies to Managed Fund Shares based on an In addition, Rule 206(4)–7 under the Advisers Act
international or global portfolio, the Trust’s makes it unlawful for an investment adviser to
the proposed rule change and discussed application for exemptive relief under the 1940 Act provide investment advice to clients unless such
any comments it received on the states that the Fund will comply with the federal investment adviser has (i) adopted and
proposed rule change. The text of these securities laws in accepting securities for deposits implemented written policies and procedures
statements may be examined at the and satisfying redemptions with redemption reasonably designed to prevent violation, by the
securities, including that the securities accepted for
mstockstill on DSK4VPTVN1PROD with NOTICES

places specified in Item IV below. The investment adviser and its supervised persons, of
deposits and the securities used to satisfy the Advisers Act and the Commission rules adopted
Exchange has prepared summaries, set redemption requests are sold in transactions that thereunder; (ii) implemented, at a minimum, an
forth in Sections A, B, and C below, of would be exempt from registration under the annual review regarding the adequacy of the
the most significant parts of such Securities Act of 1933 (15 U.S.C. 77a). policies and procedures established pursuant to
5 See Registration Statement on Form N–1A for subparagraph (i) above and the effectiveness of their
statements. the Trust, dated November 10, 2015 (File Nos. 333– implementation; and (iii) designated an individual
201473 and 811–22926). The descriptions of the (who is a supervised person) responsible for
1 15 U.S.C. 78s(b)(1). Fund and the Shares contained herein are based, in administering the policies and procedures adopted
2 17 CFR 240.19b–4. part, on information in the Registration Statement. under subparagraph (i) above.

VerDate Sep<11>2014 22:15 Feb 12, 2016 Jkt 238001 PO 00000 Frm 00116 Fmt 4703 Sfmt 4703 E:\FR\FM\16FEN1.SGM 16FEN1
Federal Register / Vol. 81, No. 30 / Tuesday, February 16, 2016 / Notices 7859

investments, to provide liquidity and to the Subsidiary is expected, as a general momentum and roll yield to over or
collateralize the Subsidiary’s matter, to invest in futures contracts in underweight the liquidity weighted
commodity exposure on a day-to-day proportional weights and allocations commodities within the equally
basis. that are similar to the Benchmark, as weighted sectors of the Dow Jones
The Fund’s investment in the well as in the other Commodities. Commodity Index. Furthermore, the
Subsidiary will be designed to help the Additionally, the Subsidiary, like the Benchmark utilizes a modified dynamic
Fund achieve exposure to commodity Fund, may invest in Other Investments roll methodology based on liquidity and
returns in a manner consistent with the (e.g., as investments or to serve as implied roll yield, includes only
federal tax requirements applicable to margin or collateral or otherwise contracts expiring out to 24 months and
the Fund and other regulated support the Subsidiary’s positions in requires that each eligible contract must
investment companies. Commodities). have open interest of at least 5% of the
The Fund intends to qualify for and
The Fund’s investment in the total open interest in the nearby most
to elect to be treated as a separate
Subsidiary is intended to provide the liquid contracts. The roll occurs on the
regulated investment company under
Fund with exposure to commodity first through fifth (1st–5th) business
Subchapter M of the Internal Revenue
markets within the limits of current days with the monthly rebalancing. The
Code.18
federal income tax laws applicable to Benchmark includes only those
Subsidiary’s Investments investment companies such as the commodities that are included in the
The Subsidiary will generally seek to Fund, which limit the ability of Dow Jones Commodity Index. Currently,
make investments in Commodities and investment companies to invest directly the Benchmark contains 24
its portfolio will be managed by the in the derivative instruments. The commodities across three major sectors
Adviser or a Sub-Adviser.19 The Adviser Subsidiary will have the same including energy, agriculture and
or a Sub-Adviser will use its discretion investment objective as the Fund, but livestock, and metals. The following
to determine the percentage of the unlike the Fund, it may invest without table describes each of the commodities
Fund’s assets allocated to the limitation in Commodities. The underlying the futures contracts
Commodities held by the Subsidiary Subsidiary’s investments will provide included in the Benchmark as of
that will be invested in exchange-traded the Fund with exposure to domestic and October 31, 2015. The table also
commodity futures contracts, centrally international markets. provides each instrument’s trading
cleared and non-centrally cleared The Benchmark is designed to offer an hours, exchange and ticker symbol. The
swaps, exchange-traded options on alternative beta using signals to generate table is subject to change (and the
futures contracts and exchange-traded alpha, but with typical indexing merits Subsidiary will not in all cases invest in
commodity-linked instruments. In this such as liquidity, transparency and a the futures contracts included in the
regard, under normal market conditions, low fee structure. The Benchmark uses Benchmark).

Exchange Contract
Commodity Exchange name 20 Trading hours electronic (E.T.)
code symbol(s)

WTI Crude Oil ................................ NYM New York Mercantile Exchange .... 18:00–17:15 ................................... CL.
NY Harbor ULSD ........................... NYM New York Mercantile Exchange .... 18:00–17:15 ................................... HO.
Brent Crude Oil .............................. ICE ICE Futures Europe ....................... 20:00–18:00 ................................... B.
RBOB Gasoline .............................. NYM New York Mercantile Exchange .... 18:00–17:15 ................................... RB.
Gasoil ............................................. ICE ICE Futures Europe ....................... 20:00–18:00 ................................... G.
Natural Gas .................................... NYM New York Mercantile Exchange .... 18:00–17:15 ................................... NG.
SRW Wheat ................................... CBT Chicago Board of Trade ................ Sun-F 20:00–08:45; M–F 09:30– W; ZW.
14:15.
HRW Wheat ................................... CBT Chicago Board of Trade ................ Sun-F 20:00–08:45; M–F 9:30– KW; KE.
14:15.
Corn ............................................... CBT Chicago Board of Trade ................ Sun-F 20:00–08:45; M–F 09:30– C; ZC.
14:15.
Soybeans ....................................... CBT Chicago Board of Trade ................ Sun-F 20:00–08:45; M–F 09:30– S; ZS.
14:15.
Coffee ‘‘C’’ Arabica ........................ NYB ICE Futures US .............................. 04:15–13:30 ................................... KC.
Sugar #11 ...................................... NYB ICE Futures US .............................. 03:30–13:00 ................................... SB.
Cocoa ............................................. NYB ICE Futures US .............................. 04:45–13:30 ................................... CC.
Cotton ............................................. NYB ICE Futures US .............................. 21:00–14:20 ................................... CT.
Live Cattle ...................................... CME Chicago Mercantile Exchange ....... M 10:05–F 14:55; (Halts 17:00– LC; LE.
18:00).
Feeder Cattle ................................. CME Chicago Mercantile Exchange ....... M 10:05–F 14:55; (Halts 17:00– FC; GF.
18:00).
Lean Hogs ...................................... CME Chicago Mercantile Exchange ....... M 10:05–F 14:55; (Halts 17:00– LH; HE.
18:00).
Aluminium primary ......................... LME London Metal Exchange ................ 20:00–14:00 ................................... AH.
Copper grade A ............................. LME London Metal Exchange ................ 20:00–14:00 ................................... CA.
Lead standard ................................ LME London Metal Exchange ................ 20:00–14:00 ................................... PB.
mstockstill on DSK4VPTVN1PROD with NOTICES

Nickel primary ................................ LME London Metal Exchange ................ 20:00–14:00 ................................... NI.

18 26 U.S.C. 851. Therefore, the Fund’s ownership and control of the shareholder of the Subsidiary. The Subsidiary will
19 The Subsidiary will not be registered under the Subsidiary will prevent the Subsidiary from taking also enter into separate contracts for the provision
1940 Act and will not be directly subject to its action contrary to the interests of the Fund or its of custody, transfer agency, and accounting agent
shareholders. The Board will have oversight services with the same or with affiliates of the same
investor protections, except as noted in the
responsibility for the investment activities of the
Registration Statement. However, the Subsidiary service providers that provide those services to the
Fund, including its expected investment in the
will be wholly-owned and controlled by the Fund. Subsidiary, and the Fund’s role as the sole Fund.

VerDate Sep<11>2014 22:15 Feb 12, 2016 Jkt 238001 PO 00000 Frm 00118 Fmt 4703 Sfmt 4703 E:\FR\FM\16FEN1.SGM 16FEN1
Document Created: 2016-02-13 03:13:29
Document Modified: 2016-02-13 03:13:29
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		81 FR 7857